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Visa Steel - Stagnant performance…
Visa Steel reported its Q3FY11 results that came lower than our
estimates. The topline came much better than our expectations at ~|
336 crore against the expected | 299 crore (up ~32% YoY and ~4%
QoQ). The trading sales for the current quarter were higher at ~| 130
crore. Volumes for the quarter were lower. However, topline growth
was aided by better realisations both QoQ and YoY due to an
improvement in overall steel prices. EBITDA margins, however, fell
~910 bps YoY and ~90 bps QoQ on the back of higher raw material
prices (up ~47% YoY and ~4.7% QoQ) putting pressure on margins.
The bottomline came at | 10.3 crore against the expected | 16.8 crore
(down ~15% YoY and marginally up ~0.4% QoQ). We have revised our
target price to | 46/ share with an ADD rating.
Lower volumes spoil the show
Sales volumes were lower across all segments viz. sponge iron
(down ~31% YoY and down ~41% QoQ), ferro chrome (down
~42% YoY and ~53% QoQ) and coke (up ~6% YoY and down
~31% QoQ). However, going forward, volumes should improve due
to restarting of its blast furnace operations.
Realisations improve QoQ, YoY
Realisations were firm across all product segments viz. coke (up
~22% YoY and ~31% QoQ), ferro chrome (up ~21% YoY and
~20% QoQ) and pig iron (up ~ 22% YoY and ~ 27% QoQ).
However, going forward, we expect prices to rise on account of cost
push on the raw materials front.
Valuation
At the CMP of | 44, the stock is discounting its FY12E earnings by 3.8x
and FY12E EV/EBITDA by 4.4x. At this point, we have valued the stock at
4.5x FY12E EV/EBITDA to arrive at a target price of | 46/ share. We have
assigned an ADD rating to the stock.
Result Analysis
The topline of the company surged ~32% YoY and ~3.6% QoQ led
primarily by an improvement in sales realisation across all categories.
During the quarter, the company undertook a coke conversion order from
Bhushan Steel and also sold one of its coking coal shipments, which led
to trading sales of ~| 130 crore. EBITDA margins also remained under
pressure due to higher raw material prices, which led to bottomline degrowth
by ~15% despite a stellar performance on the topline front.
Operational bottlenecks to ease
Realisations were strong across all categories QoQ and YoY led by
improved steel prices. However, margins remained under pressure due to
higher raw material cost. Blast furnace and pig iron production, which
was hampered, has now restarted it operations and is expected to
perform well, going forward. The trial runs on the 0.5 MTPA steel melt
shop (SMS) and additional 25 MW power plants are on and commercial
production is expected to start by Q2FY11. The company has maintained
enough inventory of coking to support its production for the next few
months. Going forward, we expect volumes to improve along with
improvement in overall realisations. Thus, we expect it to put up a better
performance as the recent operational glitches are likely to ease, along
with new capacities coming on stream.
Valuations
World crude steel production has reached 1,414 million metric tonnes
(MMT) for 2010. This is an increase of 15% compared to 2009. All major
steel producing countries and regions showed double-digit growth in
2010. The EU and North America had higher growth rates due to the
lower base effect from 2009 while Asia and the CIS recorded relatively
lower growth. In December 2010, world crude steel production for the 66
countries reporting to the World Steel Association (worldsteel) was 116.2
MMT, an increase of 7.8% compared to December 2009. The crude steel
capacity utilisation ratio of the 66 countries in December 2010 declined
slightly to 73.8% compared to 75.2% in November 2010.
Exports of steel products from China have reduced as steel production
has moderated in recent months due to energy conservation norms
imposed by the Chinese government. Along with this, rising prices of raw
materials like coking coal and iron ore have led to an increase in the cost
of production, thereby leading to an increase in steel prices globally.
Looking at Visa Steel, with forward integration of SMS, bar and wire rod
mill, additional power generation and better raw material availability the
company is likely to show an improved performance, going forward. Near
term concerns persist, however, in terms of delay in normalcy with regard
to availability of BF grade iron ore and its impact on the upcoming 0.5 MT
SMS.
Taking into account the above scenario and factoring in all the concerns
on a conservative basis, we have revised down our earning estimates for
the company for both FY11E and FY12E.
At the CMP of | 44, the stock is discounting its FY12E earnings by 3.8x
and FY12E EV/ EBITDA by 4.4x. Though the company has significant
growth potential from Q2FY12 onwards after the commissioning of its
SMS and bar and wire rod mill, we would like to remain cautious on the
execution part. At this point, we have valued the stock at 4.5x FY12E
EV/EBITDA to arrive at a target price of | 46/share. We have assigned an
ADD rating to the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Visa Steel - Stagnant performance…
Visa Steel reported its Q3FY11 results that came lower than our
estimates. The topline came much better than our expectations at ~|
336 crore against the expected | 299 crore (up ~32% YoY and ~4%
QoQ). The trading sales for the current quarter were higher at ~| 130
crore. Volumes for the quarter were lower. However, topline growth
was aided by better realisations both QoQ and YoY due to an
improvement in overall steel prices. EBITDA margins, however, fell
~910 bps YoY and ~90 bps QoQ on the back of higher raw material
prices (up ~47% YoY and ~4.7% QoQ) putting pressure on margins.
The bottomline came at | 10.3 crore against the expected | 16.8 crore
(down ~15% YoY and marginally up ~0.4% QoQ). We have revised our
target price to | 46/ share with an ADD rating.
Lower volumes spoil the show
Sales volumes were lower across all segments viz. sponge iron
(down ~31% YoY and down ~41% QoQ), ferro chrome (down
~42% YoY and ~53% QoQ) and coke (up ~6% YoY and down
~31% QoQ). However, going forward, volumes should improve due
to restarting of its blast furnace operations.
Realisations improve QoQ, YoY
Realisations were firm across all product segments viz. coke (up
~22% YoY and ~31% QoQ), ferro chrome (up ~21% YoY and
~20% QoQ) and pig iron (up ~ 22% YoY and ~ 27% QoQ).
However, going forward, we expect prices to rise on account of cost
push on the raw materials front.
Valuation
At the CMP of | 44, the stock is discounting its FY12E earnings by 3.8x
and FY12E EV/EBITDA by 4.4x. At this point, we have valued the stock at
4.5x FY12E EV/EBITDA to arrive at a target price of | 46/ share. We have
assigned an ADD rating to the stock.
Result Analysis
The topline of the company surged ~32% YoY and ~3.6% QoQ led
primarily by an improvement in sales realisation across all categories.
During the quarter, the company undertook a coke conversion order from
Bhushan Steel and also sold one of its coking coal shipments, which led
to trading sales of ~| 130 crore. EBITDA margins also remained under
pressure due to higher raw material prices, which led to bottomline degrowth
by ~15% despite a stellar performance on the topline front.
Operational bottlenecks to ease
Realisations were strong across all categories QoQ and YoY led by
improved steel prices. However, margins remained under pressure due to
higher raw material cost. Blast furnace and pig iron production, which
was hampered, has now restarted it operations and is expected to
perform well, going forward. The trial runs on the 0.5 MTPA steel melt
shop (SMS) and additional 25 MW power plants are on and commercial
production is expected to start by Q2FY11. The company has maintained
enough inventory of coking to support its production for the next few
months. Going forward, we expect volumes to improve along with
improvement in overall realisations. Thus, we expect it to put up a better
performance as the recent operational glitches are likely to ease, along
with new capacities coming on stream.
Valuations
World crude steel production has reached 1,414 million metric tonnes
(MMT) for 2010. This is an increase of 15% compared to 2009. All major
steel producing countries and regions showed double-digit growth in
2010. The EU and North America had higher growth rates due to the
lower base effect from 2009 while Asia and the CIS recorded relatively
lower growth. In December 2010, world crude steel production for the 66
countries reporting to the World Steel Association (worldsteel) was 116.2
MMT, an increase of 7.8% compared to December 2009. The crude steel
capacity utilisation ratio of the 66 countries in December 2010 declined
slightly to 73.8% compared to 75.2% in November 2010.
Exports of steel products from China have reduced as steel production
has moderated in recent months due to energy conservation norms
imposed by the Chinese government. Along with this, rising prices of raw
materials like coking coal and iron ore have led to an increase in the cost
of production, thereby leading to an increase in steel prices globally.
Looking at Visa Steel, with forward integration of SMS, bar and wire rod
mill, additional power generation and better raw material availability the
company is likely to show an improved performance, going forward. Near
term concerns persist, however, in terms of delay in normalcy with regard
to availability of BF grade iron ore and its impact on the upcoming 0.5 MT
SMS.
Taking into account the above scenario and factoring in all the concerns
on a conservative basis, we have revised down our earning estimates for
the company for both FY11E and FY12E.
At the CMP of | 44, the stock is discounting its FY12E earnings by 3.8x
and FY12E EV/ EBITDA by 4.4x. Though the company has significant
growth potential from Q2FY12 onwards after the commissioning of its
SMS and bar and wire rod mill, we would like to remain cautious on the
execution part. At this point, we have valued the stock at 4.5x FY12E
EV/EBITDA to arrive at a target price of | 46/share. We have assigned an
ADD rating to the stock.
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